GlencoreXstrata bemoaned a downturn in volatility in ag markets, and opportunities to profit from spreads, as the commodities giant unveiled a return to the red in its agricultural division.
The coal-to-biofuels group cautioned of a "generally subdued environment" in agricultural commodities which had left its farm division with a "slow start" to the year.
The unit reported a $20m operating loss in the first six months of the year, compared with a $103m profit a year before, despite a 70% jump to $16.1bn in revenues, thanks to the acquisition of grain handler Viterra.
The weakness reflected "a lack of old crop carry charges and price volatility" which left GlencoreXstrata's ag traders with "limited arbitrage opportunities".
Operating profits from the division's core crop marketing operations tumbled 87% to $15m during the half, despite an 82% jump to $14.6bn in revenues.
'Grain results were disappointing'
Activities in grains suffered particularly, thanks in part to the "significant" drop in last year's harvest in South Australia, Viterra's Australian stomping ground, cutting volumes for trading.
Furthermore, export volumes from Russia, where GlencoreXstrata is a major player, including in a port joint venture with Kernel Holding, suffered "as the poor 2012 Russian grain crop as not export competitive".
Russia's exports of wheat, which account for most grain volumes, tumbled 48% to 11.3m tonnes in 2012-13.
"Grain results were disappointing due to the lack of opportunities," GlencoreXstrata said.
As a sign of pressure on agriculture trading volumes, the group unveiled a drop of $4.92bn, year on year, in working capital – a tumble "primarily attributable to a reduction in inventory levels, particularly in agriculture", with lower commodity prices contributing "to a less extent".
The group reported "satisfactory" results in oilseeds and in cotton, where widespread market defaults landed GlencoreXstrata, and other traders in the fibre, with heavy losses two years ago.
And, in sugar, the group reported a jump of some 50% to 300,000 tonnes in marketing volumes, besides a doubling to 509,000 tonnes in cane processed thanks to expansion at its Rio Vermelho site in Brazil's key Centre South sugar region.
"The ongoing expansion plan [at Rio Vermelho] continues per schedule," GlencoreXstrata said, with the plant late this year to start exporting power made from processing waste to the Brazilian grid.
However, in Argentina, a soybean crushing joint venture at Timbues "did not commence production as anticipated due to a port issue which has only recently been resolved".
Margins at the group's Argentine operations were also "pressured" by soaring costs and excess capacity, besides a dearth of selling by farmers seeing crops in store, for sale into a dollar-denominated market, as a hedge against high inflation and a depreciating peso.
And in the European Union, GlencoreXstrata flagged a dent to biodiesel margins from "overcapacity" highlighted by a US Department of Agriculture report, although the group flagged "signs of improvement" towards the end of the half year.
The group overall reported a loss of $8.85bn for the half year, compared with earnings of $2.34bn a year before, a decline in the main down to a $7.7bn hit to the value of Xstrata mining assets – the latest in a series of writedowns in the industry.
Excluding the charge, earnings fell 34% to $1.21bn.
GlencoreXstrata shares fell 3.7% to 290.9p in morning deals in London.